"There's no denying it, the $US Gold charts look shaky and are at critical support levels. On the other side, we have indisputable proof that many non-US investors are expecting an upmove on Gold - soon. The last time they did so, they were proven right."
(Gold Commentary - August 4, 2000)
If the Gold markets could have closed a day early this week, the $US Gold price would have set some kind of a record by falling for six weeks in a row - on a week to week basis. This slide has knocked what was left of the stuffing out of "Gold bugs" around the world. Capitulation has been rampant for weeks, both regarding physical Gold and Gold stocks, on Gold chat sites. Unearthing anyone who admits to being a Gold "bull" is only slightly less difficult than finding someone to vote for in the U.S. elections.
Shall we say that since Gold hit a four month high spot future close of $US 294.30 on June 28, excitement has been at something less than white heat. Small wonder, considering the fact that Gold's biggest one day upmove between July 17 and August 10 has been the princely sum of 60 cents. Hope may spring eternal, but it is sorely tested by this kind of "action". And, overlying everything with a pall of gloom is the sad fact that between June 28 and August 9, $US spot future Gold slid by $US 22.70 , thereby giving up all but $US 0.90 of what it had gained during its June rally.
From Gold's spot future closing high to its closing low on August 9, the percentage drop was 7.7%. Over nearly the same period, the $US index rallied by 5.1%. Then, on Friday, Gold had its biggest one day jump (up $US 3.10) since it topped at $US 294.30 on June 28.
Yes, you are quite right, a lousy 1.1% rise does not a bull market make. At best, all that can be said is that Gold has found at least some support at its May 2000 lows just above the $US 270 level. And even if we do see another Gold price spike in coming days or weeks, look what happened to the last three.
Besides, once the Democratic Convention is out of the way (we can hardly wait for Mr Clinton's opening address after the soap opera performance he staged on August 10), the election is ON! And nothing is allowed to disturb Americans when they are electing a new President.
All of the above is perfectly true. What is also true, however, is that Gold is absolutely positively DEAD in the eyes of the overwhelming majority of the investment world. Volumes on the Gold futures market have been abysmal. Open interest has begun to pick up, but only from the lowest levels seen in seven years. And in the U.S., Gold stocks are even lower than they were when Gold was last in the mid $US 270s nearly three months ago.
Bear markets don't end with a bang (remember what happened to the great Gold spike of September 1999?). They end with a whimper. And that is exactly what is now happening.
So why did Gold suddenly stage a $US 3.10 upmove on Friday, August 11? $US 3.10 may not be much, but it's the biggest one day Gold upmove in more than six weeks. We think it just may have something to do with the fact that a few hours before the Comex opened for business on August 11, the Bank of Japan decided to defy its government and raise Japanese interest rates.
What counts here is not the size of the rate rise (+0.25%) or even the fact that it transforms Japan from a nation without an interest rate to a nation with one, but the precedent set by changing a policy of ever lower interest rates that had been in place for more than a decade.
The move has been expected for a while now, but expecting something to happen is not the same as having it actually happen. We analyse this move by the BOJ in the latest issue of The Privateer, published on August 13. Remember, the Japanese government were not the only ones who "advised" against this rate rise. So did the U.S., and in recent days, the (U.S. controlled) IMF.
Meanwhile, the only sector of the U.S. markets that has, so far, changed significantly since the Japanese rate rise is Gold. We hasten to add that it is only a possible start, but we also point out what we have been saying about Aussie Gold stocks ever since late May. Since that time, the Aussie Gold stocks have risen nearly 15%, and have kept almost all of those rises in the face of six weeks of lower $US Gold prices. This is precisely what they did in 1993, the last time there was a significant Gold bull market. The evidence is slowly accumulating that they just might be right again. We shall see.